Creation of state lottery brings proliferation of Indian casinos

Feb. 21, 2014

Debbie Spruce deals cards during a game of blackjack in December at the Menominee Casino in Keshena. In a statewide referendum in 1987, voters unwittingly opened the door to the billion-dollar casino industry in Wisconsin. / Lukas Keapproth/Gannett Wisconsin Media

About ‘Doubling Down’

New buildings and services on reservations in Wisconsin clearly demonstrate what the casino gaming industry has made possible for the state’s 11 Indian tribes, which hold exclusive rights to Las Vegas-style gambling here. But a wide disparity in economic gain exists that prevents some of the tribes from overcoming poverty, sub par health care and unemployment. In an exclusive seven-part series called “Doubling Down: The Great Divide in Indian Gaming” that begins today, the Gannett Wisconsin Media Investigative Team measures this disparity as well as the off-reservation impact of casino gaming. The stories, produced in partnership with the The Wisconsin Center for Investigative Journalism in Madison, will appear in each of Gannett’s 10 daily newspapers in the state and on their websites between Feb. 23 and March 9. Print publication:Sunday: Casinos pull Wisconsin tribes out of despair, but gaming hasn’t been a cash cow for all tribes. Monday: Voters who approved a lottery in 1987 unwittingly paved the way for Indian casino gaming to become a dominant and powerful force. Tuesday: Individual payments to tribal members fuel debate in Indian Country. March 2: For addicts, the gaming industry’s expansion brought ruin, not profit. March 3: For scattered Ho-Chunk tribe, gaming operations have caused conflict, created opportunity. March 4: Improving health care was one of tribes’ first priorities as gaming began. March 9: Gaming’s most significant changes may be ahead, bringing uncertainty to Wisconsin tribes.

Wisconsin Public Radio to feature I-Team casino report

The Gannett Wisconsin Media Investigative Team series Doubling Down: The Great Divide in Indian Gaming will be discussed on an upcoming segment of Wisconsin Public Radio’s Central Time talk show, hosted by Rob Ferrett and Veronica Rueckert. I-Team reporter Kathleen Foody will appear on Central Time from 5 to 5:30 p.m. Monday. Foody will give an overview of the series, and talk about how casinos benefit some tribes but not others, the health-care clinics that casinos help pay for and the future of Indian casinos in Wisconsin.

How we did this report

The Gannett Wisconsin Media Investigative Team began researching the effects of tribal gaming in the state in November. Reporters visited five tribal reservations and six casinos or other gaming facilities located across the state, from Forest County to Milwaukee. They interviewed more than 50 people, including tribal officials and members, casino employees and gamblers, residents of nearby communities and observers of the gaming industry and tribal culture. Reporters also reviewed federal, state and tribal documents detailing the flow of money in and out of casinos. The team filed 55 requests for public records with five federal agencies under the Freedom of Information Act to obtain copies of tribal government audits. All but two of the requests were fulfilled. Much of the information provided about gaming from tribes to the state is confidential. Years ago, Wisconsin officials stipulated in the compacts regulating gaming that revenue information for individual casinos and each tribe be kept private. Under public records laws, the Wisconsin Center for Investigative Journalism requested audits that the state Office of Indian Gaming and Regulatory Compliance produced on tribal gaming operations since 2011. The Wisconsin Department of Administration, which oversees the office, withheld four tribal memos attached to the audits and redacted all substantial information. Gregory Murray, the department’s chief legal counsel, concluded that compacts between tribes and the state require that gaming records be confidential. He also said the records contained confidential information about tribes’ internal processes and that releasing them could result in a competitive disadvantage or weaken security at gaming facilities. .

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When Wisconsin voters authorized a state-operated lottery in a 1987 referendum, they got more than they bargained for.

Little did they know at the time that it would pave the way for widespread Indian casino gaming.

“The people went with the lottery and we ended up with casinos,” said state Sen. Mike Ellis, R-Neenah. “I don’t think anyone who voted for the lottery thought we’d end up with casinos dotting the landscape.”

But that’s exactly what happened.

Within a few years of lottery scratch-off tickets arriving on the scene in the fall of 1988, Indian casinos began operating in Wisconsin.

A 1991 decision by U.S. District Court Judge Barbara Crabb opened the floodgates to the high-stakes, Las Vegas-style casinos. Crabb ruled that the state authorized additional games of chance when the lottery was created, meaning that Indian tribes could conduct casino games under state-tribal gaming compacts.

Today, Wisconsin’s 11 Indian tribes operate 25 licensed Class III casinos in what has become a billion-dollar industry.

Unexpected result

Wisconsin’s constitution, created in 1848, banned all forms of gambling. But four constitutional amendments between 1965 and 1987 modified the strict prohibition.

The first allowed state residents to participate in various promotional contests. In 1973 and 1977, amendments authorized charitable bingo games and raffles, respectively.

And in 1987, voters authorized a state-run lottery by a margin of 65 percent to 35 percent. As part of the same referendum, residents approved — by a 51 percent to 49 percent margin — privately operated pari-mutuel betting at racetracks. Several dog-racing facilities were opened in Wisconsin, but all have since been shuttered due to a lack of betting revenue.

The lottery, meanwhile, has thrived. In its first 25 years of operation, there were $11.3 billion in sales of scratch-off and lotto game tickets, $6.46 billionpaid out in cash prizes to players and $714 million in commissions to lottery retailers.

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But the most important number for many state residents is the amount of property tax relief the lottery generated. That figure exceeds $3.5 billion.

Property tax relief was the main focus of the state lottery referendum nearly 27 years ago – not Indian casinos.

“I don’t remember anybody making the argument that the lottery would lead to Indian casinos,” said Todd Berry, president of the Wisconsin Taxpayers Alliance. “(But) it was the state lottery that opened the door.”

State Sen. Robert Cowles, R-Allouez, said some lawmakers — prior to the referendum — billed the lottery as a way to drastically cut property taxes. There was no mention of the spillover effect on casino gambling, he said.

An analysis conducted by state officials never predicted the lottery would lead to casino gambling, Cowles said.

“An argument could be made that if they knew that would happen, they might not have passed the lottery,” he said.

Ellis agreed that the lottery referendum outcome might have been different if the full implications of the vote had been known to those casting ballots.

“If someone told us in 1986 that it would lead to this, I think there would have been a second, third and fourth look at it because nobody thought we’d end up where we are,” he said.

A monumental ruling

Within a few years of the referendum’s passage, a debate arose over the scope of the constitutional amendment.

Some argued that the referendum was limited to a state-run lottery. Others said it permitted the Legislature to legalize any form of state-operated gambling it chose, including casino-type games.

Former Attorney General Donald Hanaway, in a legal opinion issued in 1990, concluded the constitutional amendment referred narrowly to lottery games as distinct from casino games.

But in 1991, Hanaway’s successor, Jim Doyle, determined that the term “lottery” included all forms of gambling and removed the prohibition against state-operated games of chance, including casino gambling.

In the most significant ruling, Crabb ruled on June 18, 1991, that since the state constitution didn’t prohibit the Legislature from authorizing state-operated casino games, Indian tribes could conduct casino games under a state-tribal gaming compact.

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Crabb found Wisconsin’s gaming laws to be regulatory — rather than prohibitory — because the state permitted bingo and pari-mutuel racing, and conducted a lottery. She ordered the state to consider casino games “on the table” in compact negotiations.

Indian tribes in Wisconsin were allowed to negotiate gaming compacts authorizing a wide variety of gambling activities on reservations and federal trust lands. As a result, 11 Indian tribes and bands began operating casinos in Wisconsin, under state-tribal gaming compacts signed in 1991 and 1992.

Cowles said the issue of casino gambling in Wisconsin would have been extensively debated by lawmakers, “but it wasn’t; it was determined by a judge.”

Despite his misgivings about how casino gambling was authorized, Ellis accepts that casinos are here to stay.

“It’s there; we get some money out of it (in payments from state-tribal compacts),” he said. “Do I think it’s good? I don’t go to casinos, but that doesn’t mean there’s something wrong with going to casinos. It’s an entertainment element of the state. I don’t really have strong feelings about it.”

Cowles expressed similar sentiments.

“I think people have accepted it,” he said. “I think they want to see a fair payment of dollars for the compacts.”

The original compacts required a dollar amount from the tribes on an annual basis. But as the casino operations became more successful, the state and the tribes instead agreed to a percentage of profits.

Since 2001, Wisconsin’s 11 tribes have sent $858.5 million to the state. The annual median payment was about $51.5 million.

Berry, the Wisconsin Taxpayers Alliance president, said the casino industry has held its own in Wisconsin, but the economic impact hasn’t been overwhelming.

“There’s no question that the Indian casinos have had a financial draw on the state’s discretionary income, but I would be hesitant to characterize this as a massive economic stimulus,” he said.